32515965-Prospectus

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1 What you should know : 5.1 Prospectus: What it is and why it is issued? 5.2 Various methods of raising of share capital 5.3 What are the statutory requirements for the issue of prospectus? 5.4 Contents of prospectus 5.5 Statement in lieu of prospectus 5.6 Shelf prospectus 5.7 Information memorandum (book building) 5.8 Is there any liability f or mis-statement in prospectus?. 5.9 What is the requirement to be satisfied for listing of shares with SEBI? Prospectus

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2 5.1 What it is and why it is issued? Means any document, described or issued as a prospectus and includes any notice, circular advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares, or debentures of, a body corporate. Prospectus  Invitation to offer Application for shares  Offer Allotment of shares  Acceptance of the offer, resulting in a binding contract.

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3 A document would be considered a prospectus only if it meets the following requirements, viz. - it should be in writing - it should be issued by or on behalf of a body corporate - it should be issued to public - it should contain invitation to public for making deposits or for subscription of shares in or debentures of a body corporate.

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4 5.1a. Is the issue of prospectus compulsory? The issue of a prospectus by a company is not compulsory in the following cases - shares/debentures not offered to the public - private channels fundings

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5 5.1b. SEBI’s powers under new section 55A in respect of listed companies (i) Investor protection, (ii) Promotion, development and regulation of securities market.

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7 What is QIP? Qualified institutional placement (QIP) is a capital raising tool, whereby a listed company can issue equity shares to a qualified institutional buyer (QIB). Such as PFI, Scheduled commercial banks; Mutual funds; Foreign institutional investor registered with SEBI; Venture capital funds registered with SEBI; Insurance Companies. Apart from preferential allotment, this is the only other speedy method of private placement for companies to raise money. It scores over other methods, as it does not involve many of the common procedural requirements, such as the submission of pre-issue filings to the market regulator.

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8 5.2 Apart from the issue of prospectus, what are the other ways of raising of capital? QIP

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9 5.3 What are the statutory requirements for the issue of prospectus? 1. Contents of Prospectus: 2. Dating and signing of Prospectus: 3. Vetting/approval of prospectus 4. Registration of prospectus with ROC: 5. Issue within 90 days of registration 6. Terms of contract cannot be varied: 7. The expert's consent to the issue of prospectus. 8. Abridged prospectus must accompany application forms 9. Offer for sale by Issuing Houses is ‘deemed prospectus’ 10. IPO grading mandatory

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10 5.4 CONTENTS OF PROSPECTUS Contents as per sec 56 - General information - Capital Structure - Terms of the issue - Particulars of issue - Company, Management and project - Stock market data - Outstanding litigation’s - Risk factors - Disclosure as per SEBI guidelines mandatory in addition to the requirement of schedule to the Companies Act.

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11 5.5 Statement in lieu of prospectus A public company having a share capital is required to file a SLP: - where company does not issue a prospectus - failure to raise the minimum subscription - on conversion of private co. into public co. It must be filed at least three days before any allotment of shares or debentures is made. Consequences of non-filing SLP – Avoidance of allotment, punishment

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12 5.6 Shelf prospectus (Section 60A) a) Shelf prospectus is issued by financial institutions or banks to tap the capital market more than once in a year. b) Who shall file a shelf prospectus . FIs / Banks which are financing private industrial enterprise engaged in infrastructural financing. c) Registration of Shelf Prospectus. Valid for one year from the issue date. d) Requirement of filing information memorandum.

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13 Abridged Prospectus The prospectus is a bulky document and to supply prospectus with each application form is economically not feasible. In order to reduce the cost of public issue abridged prospectus was introduced Abridged prospectus means a memorandum containing such salient features of a prospectus as may be prescribed (section 2(1)). It has to be in FORM NO. 2A. It contains all the salient features of a prospectus. It accompanies the application form of public issues. A company cannot supply application forms for shares or debentures unless the form is accompanied by abridged prospectus (Section 56(3)). Penalty for failure to comply with this provision can be upto Rs. 50,000.

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14 In order to avoid the expenses of issue of prospectus, which are quite exorbitant) one practice is that the company may allot or agree to allot shares to an “issue house” (merchant banker or financial institutions) without issuing the shares to the public through issue of prospectus. The issue house in turn makes an offer for sale to the public. This offer for sale or advertisement of such issue house is called “ deemed prospectus ”. Deemed prospectus

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15 “Red Herring Prospectus” is a prospectus which does not have details of either price or number of shares being offered or the amount of issue. This is used in book building issues only. In the case of book built issues, it is a process of price discovery and the price cannot be determined until the bidding process is completed. Hence, such details are not shown in the Red Herring prospectus filed with ROC in terms of the provisions of the Companies Act. Red herring prospectus(RHP) (section 60B):

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16 When the public issue is through book building process the red herring prospectus is filed with the ROC atleast three days before the opening of the offer an must contain and all the features of a prospectus as per schedule II of the Companies Act. It should be signed by all the directors of the company or their constituted attorney. Only on completion of the bidding process, the details of the final price are included in the offer document. The offer document filed thereafter with ROC is called a prospectus.

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17 A Red Herring Is Variously Defined: a dried, smoked, Herring The curing process turns the fish red. in finance, a preliminary prospectus for an offering of stock, so called for the notice in red type required by law at the top of the front page

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18 WHY RED HERRING (it is an IDIOM-METAPHOR) There is no price or issue size stated in the red herring , and it is sometimes updated several times before being called the final prospectus. It is known as a red herring because it contains a passage in red that states the company is not attempting to sell their shares before the registration is approved by the SEC.

Presentation By Dr. V.K.Jain M.Com, LL.M., M.Phil, Ph.D.(Tax), ACS PVS CORPORATE AND ALLIED SERVICES e-mail:[email protected] S-13, “SABURI”, Bharat Nagar, NAGPUR-400 010.:

Presentation By Dr. V.K.Jain M.Com, LL.M., M.Phil, Ph.D.(Tax), ACS PVS CORPORATE AND ALLIED SERVICES e-mail:[email protected] S-13, “SABURI”, Bharat Nagar, NAGPUR-400 010. Presentation on Book- Building and Listing of Securities

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20 Book Building Overview – SEBI Guidelines 1. Preliminary 2. Eligibility Norms 3. Pricing 4. Promoters Cont. & Lock in 5. Pre Issue Obligations 6. Draft of Prospectus 7. Post Issue Obligation 8. Other Issue Reqment 9. Advertisement. 10. Debt Instrument 11.Book Building 12. Issue by DFI 13.Preferential Issue 14. OTCEI Issue 15.Bonus Issue 16. Operational Guide. 17.Miscellaneous

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21 Book - Building A New Route of Capital Issue Chapter XI of the SEBI Guidelines, 2000 Object of Book- Building:  To decide the fair price of shares.  To garner the Investors Confidence.  To provide Issuer and LM, the flexibility of the price & demand discovery.

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22 100% Book-building Process Process of Book-building

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23 BOOK – BUILDING 100% Book Building QIBs MFs, Banks, FIIs, VCF, Pension Fund Non-institutional Bidders > 1 lac Retail Bidders < upto 1 lac Upto 50% of Net Offer to Public Minimum 15% Minimum 35% Discretionary Allotment Proportionate Allotment Proportionate Allotment

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24 Principal Parties/Intermediaries involved in Book- Building Process 1. The Issuer Company. 2. Book Running Lead Manager. 3. Lead Manager. 4. Syndicate Member (Underwriter)

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25 Other requirements of Book Building – - Trading shall commence within 6 days of the closure of the issue. - Issuer to provide indicative floor price and no ceiling price. - Bids to remain open for atleast 5 days. - Bids are submitted through syndicate members. - Investors can bid at any price, retails investor have option to bid at cut off price. - Only electronic bidding is permitted. - Bidding demand is displayed at the end of every day. - The lead manager analyses the demand generated and determines the issue price in consultation with the issuer etc.

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26 5.7 Information Memorandum (Section 60B) a) Meaning of Information Memorandum b) Who may circulate Information Memorandum c) Red-herring prospectus d. Final prospectus to be filed after closing of the offer of securities

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27 Information memorandum Red herring Prospectus (at least 3 days before the opening of the offer) Filing of Complete Prospectus (on closing of the offer)

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28 5.8 IS THERE ANY LIABILITY FOR MIS-STATEMENT IN PROSPECTUS? A. Civil Liabilities for mis-statements in prospectus a. Remedies against the company. - Rescission of contract - Suit for damages b. Remedies against directors. - damages for fraudulent misrepresentation, - compensation under section 62 of the Act, - damages for non-compliance with the requirements of section 56 of the Act.

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29 B. Criminal Liabilities for mis-statements in prospectus a) Section 63 provides for criminal liability for misstatement in the prospectus. b) Penalty for Fraudulently Inducing Persons to Invest Money. c) Prohibition of allotment of shares in fictitious name.

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30 5.9 What is the requirement to be satisfied for listing of shares with SEBI? 1. Compliance with the SEBI Guidelines 2. Holding of general meeting 3. Intimation of stock exchange 4. Appointment of managers to the issue 5. Appointment of various other agencies 6. Drafting of prospectus 7. Approval of prospectus 8. Vetting of prospectus 9. Filing of draft prospectus with Stock Exchanges 10. Approval of board of directors to prospectus and other documents 11. Registration of prospectus with ROC

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31 12. Making application to Stock Exchange(s) for Permission to enlist shares 13. Printing and distribution of prospectus and application forms 14. Certificate relating to promoters’ contribution 15. Announcement and advertisement 16. Co-ordination with the bankers to the issue 17. Allotment of shares 18. Filing of other Forms with Registrar of Companies 19. Over-subscription not to be retained 20. Refund orders 21. Compliance report 22. Issuance of share certificates